With the energy price cap currently set at £1,690 for the average dual-fuel household, many are wondering whether now is a good time to consider switching to a new fixed-price energy tariff.
Switching energy providers isn't as simple as it used to be. Ofgem, the energy regulator now makes quarterly changes to the energy price cap and there was additional complexity thanks to the government's Energy Price Guarantee, a scheme that expired at the end of March 2024.
Fixing your energy tariff could be a way for you to simplify your energy bills and also budget, as you will know exactly what you will be paying over the fixed term. It does, however, come with the risk that you could end up paying more for your energy and so in this article, we take a look at the pros and cons of fixing your energy tariff as well as the things you should consider before switching to a new energy provider.
Is now a good time to fix my energy tariff?
Before considering whether now is a good time to fix your energy deal, it is worth taking a brief moment to understand how the energy price cap works. We also explain how the Energy Price Guarantee works, as well as when it is due to cease.
Energy price cap explained
The energy price cap is set by the UK's independent energy regulator Ofgem. It aims to protect UK consumers from excessively high energy prices. The energy price cap is the maximum price that energy suppliers can charge per kilowatt per hour (kWh) and it applies to standard variable and default tariffs. The energy price cap is reviewed every quarter with the next announcement due in May 2024. Importantly, the energy price cap does not apply to fixed energy tariffs, so it is important to ensure you are getting a good deal before committing to a new fixed-price energy deal. In some circumstances, it may be possible to move from a fixed deal to a standard tariff, but it varies from provider to provider and some providers may charge an exit fee.
Latest energy price cap figures
Rather than concentrating on the actual kWh charges for electricity and gas, the energy price cap is usually expressed as an annual figure, based on the average dual-fuel household bill. The latest energy price cap figure currently stands at £1,690.
Thankfully, wholesale energy prices are less volatile than they have been and the current energy price cap level means we no longer have to rely on the Energy Price Guarantee or any other government subsidies to help keep costs down. That said, while energy prices continued to fall throughout 2023, we did see an increase of 5% for January 2024 before falling around 12% in April 2024.
Energy Price Guarantee explained
The Energy Price Guarantee (EPG) was a Government subsidy that ensured energy prices remained at a certain level for UK households. Introduced on 1st October 2022, the Energy Price Guarantee initially meant direct debit customers paid a maximum of £2,500 per year based on the average dual-fuel household. In July 2023, the Energy Price Guarantee increased from £2,500 to £3,000 and the subsidy ceased at the end of March 2024.
What is a fixed energy tariff and how does it work?
A fixed energy deal allows you to pay a set price for your gas and electricity. The price includes a fixed kWh charge for a unit of gas and electricity as well as a fixed daily standing charge (an amount paid daily no matter how much energy you use). Fixed-price energy deals usually last for a year, however, some suppliers allow you to lock in the price for longer. Most people choose to fix their electricity and gas prices with the same supplier, often referred to as a 'dual fuel' energy deal, however, customers are free to opt for different suppliers should they wish. Those who opt to pay by direct debit will usually receive a slightly discounted rate, meaning those who pay on receipt of the bill or via a prepayment meter will usually pay a little more.
Wholesale energy prices remained persistently high throughout much of 2022 and early 2023, meaning many UK households simply chose to stay on their supplier's standard variable tariff, as the rate that they pay is protected by both the energy price cap and Energy Price Guarantee. Currently, very few fixed-price energy tariffs are available, however, this is likely to change in the coming months. Check out our article 'What is the cheapest fixed-price energy tariff? - Best deals compared' for the latest fixed-price energy deals.
Should I fix my energy prices until 2024?
The energy price cap is currently set at £1,690 and the next announcement from Ofgem is due by the 24th May 2024. This will set the energy price cap for the three months from 1st July to 30th September 2024. With continued uncertainty around energy prices, fixed energy tariffs could become attractive once again which leaves many wondering whether they should fix their energy tariff. The image below shows how the energy price cap has changed in recent months.
You can see from the image above that energy prices have fallen throughout 2023, however, they rise again in early 2024, before falling again in April. Fluctuating prices could make fixing your energy deal more attractive as you will have certainty over what you will be paying for your energy over a fixed term. There are, however, some considerations before committing to a new fixed-price energy tariff, which we explain below.
Things to consider before fixing your energy tariff
1 - Check how much you currently pay
Before you switch energy providers you should take the time to understand exactly what you currently pay and what type of deal you are on. Check whether you are on your provider's default standard variable tariff or whether you are already in a fixed deal. Check how much you are being charged per kWh for gas and electricity and also note down your daily standing charge. Also check how you pay your bill as this can impact the price you currently pay. Do you pay by direct debit or on receipt of a bill or do you have a prepayment meter?
2 - What is the energy price cap and what is it predicted to be?
It is important to check the current energy price cap figures set by Ofgem and it is wise to keep an eye on what the future energy price cap is predicted to be. The energy price cap does not apply to fixed-price energy tariffs and so you should be confident that the deal you agree to is better than the current and expected energy price cap figures. This article is regularly updated with the latest energy price cap predictions, so bookmark this article for the latest predictions.
3 - How long should you fix your deal for?
Most fixed-price energy deals last for 12 months, however, some deals can last longer. If the price of electricity and gas continues to fall, fixing your tariff could mean that you miss out on some better deals in the future.
4 - Are there any exit fees?
It is wise to check for any exit penalties and fees. Exit fees only usually apply to those looking to exit their existing fixed-price deal before the agreed term is up. Most customers can switch from a provider's default standard variable tariff penalty free, however, you should always check to make sure.
Pros and cons of fixing your energy tariff
Below we consider the pros and cons of fixing your energy tariff.
Pros of fixing your energy tariff
- Protection from energy price increases
- Consistent bills can help with budgeting
- Peace of mind
Cons of fixing your energy tariff
- Potential to miss out on better deals in the future
- You may need to pay an exit fee for early cancellation if prices continue to fall
- Less flexibility
How to fix your energy tariff
Firstly, check how much you currently pay for your gas and electricity. It is likely that the price you currently pay is capped due to the energy price cap but it is worth checking your bill so that you know the price you'll need to beat when deciding whether you should fix your energy costs.
Next, keep an eye on energy price predictions and the latest energy price cap figures from Ofgem as this will ensure you are fully informed before you commit to a new energy deal.
Finally, use a comparison site or auto-switching service to compare the best fixed-price energy deals on the market and switch to a new seal. If there is a deal that beats what you are currently paying and is lower than the energy price cap, then you may want to consider switching to that deal. Most comparison sites allow you to switch online in just a few minutes and your new provider will deal with the cancellation via your old provider on your behalf. Keep in mind that if energy prices fall in the future, there may be better deals that come to the market in the coming months. Fixing your energy tariff will mean you are unlikely to be able to switch to a better deal during your fixed term, unless you pay a hefty exit penalty fee.
If you are unable to find a competitive fixed-price energy deal then there are other ways to bring down the cost of your energy. Check out our article 'How to save money on your energy bills' for tips on how to reduce your energy costs. If you are struggling to make ends meet then you may wish to check out our Cost of Living Guide as it provides a number of money-saving tips as well as an extensive look at the help that is available.
